Inflation in the United States edged higher in February, outpacing market forecasts, according to data released by the Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI) increased by 10 basis points to reach 3.2% year-on-year, surpassing January’s 3.1% year-on-year figure and expectations of a 3.1% increase.
Breaking down the numbers, energy prices experienced a milder decline compared to the previous month, settling at -1.9% year-on-year, as gas and gasoline prices decreased at a slower pace relative to the prior year. Meanwhile, food prices moderated to a 33-month low, with a year-on-year increase of 2.2%, influenced by a slowdown in both food at home and food away from home costs.
On a month-on-month basis, headline inflation rose by 0.4%, driven by spikes in shelter and gasoline prices. Analysts anticipate that high energy prices and wage gains will continue to keep broader inflationary pressures intact. Additionally, supply chain disruptions resulting from the Red Sea crisis are expected to exert further upward pressure on goods prices in the near term.
Given the persistent inflationary pressures and the CPI remaining above the U.S. Federal Reserve’s target of 2.0%, financial markets are speculating that the Fed may maintain a ‘HOLD’ stance over its next two policy meetings. The CME FedWatch tool indicates a 99.0% probability that the Fed will keep rates unchanged at the March meeting and an 89.1% probability for the May meeting as it awaits greater confidence in the sustainable return of inflation to target levels.
In a separate report from the United States Department of Labor, initial jobless claims in the US declined slightly by 1,000 to 209,000 in the week ending 9 March, signaling ongoing resilience in the labor market despite tight monetary conditions. The decrease is attributed to improved economic activities and employers’ efforts to retain workers. However, there has been a recent uptick in job cuts, particularly in technology and media firms, leading to a rise in continuing claims for unemployment insurance.
Analysts anticipate that the labor market will maintain its resilience in the short run as economic activities remain strong. However, concerns arise that prolonged elevated interest rates may eventually impact the labor market, potentially pushing unemployment higher.
As the Fed continues to monitor inflation and employment data, market participants remain cautious about the economic outlook, particularly regarding the timing and trajectory of future interest rate adjustments.
